When the MoU for the refinery was inked in 2004, Odisha had agreed to defer for 11 years collection of value added tax (VAT) on products from the plant.MEERA MOHANTY | ET Bureau | September 14, 2016, 08:24 IST

When the MoU for the refinery was inked in 2004, Odisha had agreed to defer for 11 years collection of value added tax (VAT) on products from the plant, originally of 9-million-tonne-per-annum capacity, on condition that the plant must go on stream by 2009. The refinery, now a 15-mtpa capacity, began commercial production only this year.

The Naveen Patnaik government is reluctant to agree on this expensive promise and has informed the Centre about its concerns in the past. Senior officials of his government have held two meeting with officials of IOCL and the Ministry of Petroleum and Natural Gas this year. Meanwhile IOCL has begun availing this deferment of value added taxes.

On Monday Saswat Mishra, the commissioner of commercial taxes, in a letter to additional chief secretary R Balakrishnan on Monday, argued that the VAT deferment was making a big dent on the commercial tax collections and the revenue loss could not be compensated by any other means. “It is apprehended that the total deferment of VAT, being availed by IOC (Paradip Oil Refinery) unilaterally in violation of the provisions of the OVAT ACT, is likely to exceed Rs 2,000 crore in 2016-17, which will be 11.42% of the commercial tax target of Rs 17,500 crore fixed by the state government for FY2016-17,” he wrote.

Mishra claimed that August collections for the state would have grown 14.02% had it not been for the Rs 531.96-crore discount given to IOC on account of the tax deferment and commercial tax collections for the month posted a mere 4.02% rise.

Odisha had earlier this year raised the tax rate on petrol and diesel from 23% to 26%. Mishra pointed out that the state was not getting the corresponding benefits because of the tax relief to IOC, which claims 65% share of the market. He said that the oil PSU was pushing products from the Paradip refinery more aggressively and districts like Koraput, Rayagara, Nabranpur and Malkangiri, which were earlier serviced from Vizag, were now being supplied from its Jatani depot near Bhubaneswar.

The commissioning of the refinery in February was a grand affair attended by the Prime Minister Narendra Modi. It marked a major milestone in Odisha’s industrialization, and the BJP, the INC and the Biju Janata Dal all claimed credit. A competing show of strength between BJD’s Paradip politicians and those loyal to union petroleum and natural gas minister Dharmendra Pradhan, who declared it the eastern energy gateway, had nearly overshadowed the big event.